November 18, 2010 | In: Financial
What Will Happen to AIB in Case of a Bailout?
If there is one scary stock out there, it’s AIB, it’s completely unpredictable, it can go up 10% or down 10% in one day, it can play between -10% and +10% in one day, it can trade in the after hours at 10% less or 10% more the stock price, and it can start the next day by trading in the complete opposite direction of the last 10 day, either erasing gains, or erasing losses. I have pondered a lot about buying AIB but it’s just too scary for my taste.
Now we know that the whole of Europe is in panic mode because of Ireland, who continuously refuses (and rightfully so) to be bailed out (some say the Irish are just blackmailing the Eurozone), others say it’s the Irish sense of nationalism playing. But with the exception of the Irish and (maybe) the Europeans, who cares why Ireland is doing this?
The most important thing right now for the Europeans (governments, not people, the people now hate the Euro) is to save the Euro, Ireland is not Greece, nor Portugal. Ireland is a hub, and there’s a lot of real (not real estate in a near-perfect weather, like Greece) international investment in Ireland. The fall of Ireland is definitely the beginning of the end of the Euro, we know it, and they know it. Of course, in the long term, the fall of the Euro is better for everyone, but in the short term, it will mean that a lot of investors (and to a larger extent, countries) out there will have to reassess their position of the Euro, and more importantly, the dollar.
So how can Ireland threaten the Euro? Well, for starters, they can get out of the Eurozone (which is very, very tempting) and start printing their own money. The confidence in the Euro will disintegrate, and the Euro, in no time, will be worth almost nothing.
The more of these things happen (Greece, Portugal, Ireland, Spain, etc…), the more I feel that the Euro is this bad relationship that is supported artificially by fake emotions, and there is no reason whatsoever for that relationship to exist anymore. But who am I to judge a currency, and the countries adopting that currency?
Now let’s examine AIB. If you check the volume of AIB in the previous days, you will notice that it is at least 30% below average, this stock have investors confused. Everyone knows that a European bailout will happen and to the Irish terms, but apparently nobody wants to touch this stock until a process on how the bailout money is spent is mapped out. AIB will continue to be very volatile, probably more on the upside, when Ireland (and consequently Irish banks) is bailed out.
AIB will be fun to watch in the next few weeks, and with a market capitalization of $690 million, Allied Irish Bank is way undervalued, if it survives this mess.